Emerging Market Debt: Two Truths and a Lie

Emerging markets are benefiting from two mutually reinforcing investment cycles in AI and energy, which are strengthening their resilience despite the recent energy shock.

• Emerging Asia excluding China and Japan now represents close to 35% of global manufacturing, while EM economies supply key parts of the AI chain, including semiconductors, data-center components, electronic parts and energy-storage systems.
• Global spending on broadly defined AI is expected to nearly double in 2026 to more than $2.5 trillion, with another potential $1 trillion in 2027; South Korea, Taiwan, the Philippines, India, China, Vietnam, Malaysia and Singapore are positioned across the supply chain.
• Global electricity-demand growth is forecast to accelerate to 3.6% annually in 2026–2030 from 2.8% over the previous decade, supporting investment in grids, storage and transmission; China is undertaking a five-year power-grid upgrade exceeding $700 billion.
• EM countries also control critical inputs for electrification: Chile and Peru hold nearly one-third of global copper reserves, Indonesia supplies tin, nickel and copper, China dominates rare earths, and the Democratic Republic of the Congo has about 70% of global cobalt production.
• Governments cushioned the energy shock through subsidies, curtailment measures and alternative oil supplies, while wider Asian trade deficits also reflect imports of capital goods linked to AI activity; risks remain from geopolitics and a possible super El Niño.

Takeaway: Investors should view EM debt and growth through the lens of structural AI, energy-infrastructure and commodity tailwinds rather than assuming that the energy shock has weakened EM resilience, while recognising that the outlook remains exposed to geopolitical and climate risks.